RTI fears for owner-managed businesses

Real Time Information (RTI) could create new hazards for small, owner-managed companies, reports Robert Lovell.

When RTI comes into force during April-October 2013, employers will be required to send HMRC payroll payment information that includes information on the amounts paid and the number of hours. The submissions are made when the payroll is processed, which will have to be weekly or monthly to allow the Department of Works and Pension to use the information to calculate Universal Credits payments.

The RTI arrangements are not well suited for one-man companies that pay low salaries and large dividends, as AccountingWEB members discussed in Any Answers this week.

The requirement to log hours worked could also put directors in this situation in conflict with national minimum wage rules.

And smouldering in the background is the PA Holdings v HMRC case, which could potentially pave the way for a wider attack on using dividends as remuneration.

My understanding is that a company director is an officer of the company in law and is not entitled to the Minimum Wage unless he, or she, also has a contract of employment. As such I am not sure how a challenge from HMRC could be successful on this point when it relates to directors.

I wonder (and I've written to the PM about it), how many small businesses will just get rid of staff rather than have all the hassle & risk of penalties that RTI will bring. In my previous life as a newsagent with lots of part time staff I would have seriously considered running the shop with no staff under these onerous regulations.

It seems that no one at HMRC has any experience of the real world and do not appreciate the long hours put in already, without adding to the burden.

I've brought up RTI many times before on here and other fora but one thing that we and other business groups must do is accurately and dilligently record working hours. This will no doubt start alarm bells ringing at HMRC and release a flood of NMW investigations but this is the only way that HMRC and the Government will be dragged kicking and screaming from their 35 flexy-hours per week world into the real world of running a business.

HMRC aren't going to use RTI data to look for NMW violations at present and even if they wanted to, the current data would be next to useless for this purpose. Firstly, you don't submit a precise figure for each employee. Instead, you put each employee into one of four bands:

zero to 15.99 hours

16 to 29.99 hours

30 or more hours

'other' (to cater for situations like pension payrolls where no work at all is ever done).

This itself would severely limit the usefulness of the data for NMW purposes, but when you add in the fact that the categorisation is based on the number of hours the person is normally expected to work, not the hours they actually did work, it becomes even less useful.

It's a myth that you need to report the actual hours worked on a period-by-period basis. A commonly-believed myth, but a myth nonetheless!

As for directors, well:

If they get paid something "RTI-able" every month, they'll need reporting every month just like every other monthly-paid person. However as commented above there are ways in which a director can get an income without getting a monthly salary or anything else which comes under PAYE and in these cases no RTI return would be needed.

Directors who are paid annually will be reported under RTI once a year, when they get paid, again just like everyone else. The RTI submission contains the pay frequency, which would be 'Annual' in these cases. You'd also need to set the "irregular payment" flag on this submission to get round the 13-week issue.

The universal credit argument is a scam and another smokescreen.We already know that there is no link between HMRC computers and the DWP so how is the information going to be used for this purpose,they cannot link tax credit claims with SA tax return info now, so what is going to change. Its just another load of red tape introduced by the Eaton / Oxbridge brigade that has no idea how small business works and who may as well live on another planet when it comes to undesrtanding the life of joe public.

This will become a major barrier to employment and lead to far more "off the books employees". HMRC will use the info to fine, penalise and terrorise small employers tying up staff colecting peanuts from the poorest, whilst the fat cat tax evaders laugh all the way to the Seychelles with their millions

AccountingWEB's tax podcaster Anne Fairpo reviewed the latest developments in RTI in this week's edition (16 July). In the PA Holdings case, she commented, RTI wouldn’t have make much difference, but the kinds of information required under RTI could make HMRC aware where disguised remuneration is taking place. That could mean more investigations if the information gives HMRC the ability to see what’s going on, she warned.

Stay tuned for more RTI coverage this week - DWP and Treasury ministers are embarking on a major communication push and have scheduled a press conference on Tuesday morning. I'll be there on behalf of AccountingWEB and will report back later in the day.

I work for Pegasus Software & we are in the process of changing our Payroll Software to be RTI compliant. In the introduction you state that "RTI comes into force in October 2013". Our communications with HMRC currently states that RTI comes into force in April 2013 for small to medium sized business's (i.e. those with less than 250 employees). For larger compnaies (i.e. greater than 250 employees) it will between June & September with all business's operating RTI by October 2013.

HMRC will notify comapnies in writing some 4 to 6 weeks prior to them having to operate RTI.

So bad news, it is earlier than stated, unless of course HMRC change their minds again!

We are off to a Tax Credit Tribunal tomorrow to support a client director whose business is in the doldrums to help him convince them that he works for hours for no pay. We are doing it pro bono, of course.

I'm a sole practitioner with massive concerns about RTI. Nationally I think it will be meltdown, I will be all right personnally as I don't do many payrolls but if HMRC can't cope with it once a year right now - and they can't - they have no chance when it is once per month.

I spent half an hour this morning discussing this with the payroll head of one of the largest accountancy practices in the county. We were exactly on the same page. This scheme was dreamt up by Mr. Clueless MP and will be implemented by Mr. & Mrs. Clueless Jobsworth of HMRC.

Of all the many things that are needing fixing in UK tax laws HMRC, this is about the last place I would start. Yet more evidence of just how out of touch the decision makers are.

I saw Mr Mischief's post about Clueless and understand what he means. I have just been reading a Sage briefing. I got to page 6 which breezes through RTI started swearing and threw the briefing note at the wall.

It read

"Jane Brotherwood HMRC

Deputy Director of Stakeholder Engagement, Communications and Customer Insight for HMRC's RTI............. Jane has a background in stakeholder management having successsfully led HMRC's Software Developers' Support Team working with developers to provide a range of products to support HMRC's online services......."

I thought job titles were meant to give you an idea of what someone does. I am still not convinced I know what a stakeholder is as it seems to have changed from being a fence post holder to some idea that everyone is included in the decision making process - they're not but you have got to look like your working with them. On that basis is Stakeholder Engagement simply going around and pretending you are taking notice whilst your department ploughs on ignoring everyone? Communications, if the job title is anything to go by one sentence will become several pages of management speak cod. Customer Insight now that is really taking the mick. If HMRC was concerned with our views we would not be spewing vitriol here. It's even more disconcerting, she's only the deputy director; there is someone getting paid even more to do the same job.

Giving the poor standard of software produced by HMRC is her recent experience really something to trumpet?

If HMRC IT is so good, how is it -

1 I finish up with multiple user names and passwords one for each part of HMRC online service;

2 even trying to do something simple following HMRC instructions online, I get to a page only to find the link it says is there is not or is called something else; and

3 I cannot bring myself to address these concerns with the online support teams because they simply take a message and promise some sort of repsonse within 4 days by which time the filing date is past and I lose the will to live; and

4 I cannot get HMRC to stop allocating a client's PAYE remittances against his SA reference?

The stakeholders need to use their stakes and start impaling the undead.

We are off to a Tax Credit Tribunal tomorrow to support a client director whose business is in the doldrums to help him convince them that he works for hours for no pay. We are doing it pro bono, of course.

The report last week on PAYE at the Crossroads said that 250,000 employers will be in RTI from April 2013. That has to be most employers who are not 'micro-' or 'nano-' employers. There simply aren't 250,000 employers with at least 250 staff: that would imply 62.5m workers, disregarding all the smallest businesses. If that was right, there would be a huge number of 'ghosts' and 'moonlighters' - maybe they are the people who are responsible for the missing billions alleged to be evaded that contribute to the so-called tax gap?

it looks more like HMRC is aiming for all but the smallest employers to be in RTI from April. This would have the advantage that they could start a new year with a blank sheet of paper, not worrying about migrating brought forward figures in mid-year, and HMRC could then concentrate its efforts on migrating those with up to five employees, and all the domestic employers with nannies, housekeepers and gardeners over the following six months.

Whether all businesses with more than five employees will be remotely ready by April 2013 is anybody's guess. I'd hate to be responsible for the HMRC helpline that's supposed to support the migration next year.

And what about small "employers" who do not have a computer, yet alone broadband? They do exist. The category includes people who have to pay for care. This is likely to increase as local authorities are strapped for cash. Domestic help is not only for the rich but essential for some to make life tolerable. Politians will not like HMRC to upset this group.

I have yet to discover how a small business is expected to cope with a weekly payroll where the staff all work different hours each week and the one who runs the payroll wishes to take more than a few days holiday. The HMRC FAQ's allows for rti to be submitted in advance but that is not helpful in my situation. Has anyone else come up against this problem?

I picked up that HMRC wants to link RTI with physical net pay, by having a link to the BACS payments (where there are any - see earlier post). It seems employers are not only to change their payroll software but also their BACS software. This would mean HMRC would have access to individual employees' bank account details. I don't think all employees would be happy with this arrangement, and employers would have to have every employee's consent to do this first.

This would mean HMRC would have access to individual employees' bank account details. I don't think all employees would be happy with this arrangement, and employers would have to have every employee's consent to do this first.

Any thoughts?

I don't think that banks will be too happy either because the obvious "work around" is to have two bank accounts - one specifically for salary deposit that HMRC "see" and one that actually holds the money.

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My approach is to pay the director fee as an annual honorarium into the director's loan account practically as soon as the tax year starts.

The DLA is then drawn down when the director requires the money.

This approach just dispenses with the concept of "salary" altogether; its disadvantage is that the director loses all entitlement to NI credits, which is why so many directors bother with the system of paying themselves £624 per month and then top up with dividends or withdrawals from their DLA (if profits/funds permit): they thereby qualify as earning over the Lower Earnings Limit but are just under the Secondary Threshold, so they pay no employee's NI, and as they are also under the Primary Threshold their company pays no NI either. Then, because their earnings are between the LEL and ST, they qualify as "low-earners" and are entitled to receive NI credits.

The same problem applies if directors seek to avoid the burden of RTI administration by reducing their salaries to below the Lower Earnings Limit: yes, this removes the need to operate a PAYE scheme and RTI, but again they will get no NI credits as their salaries are less than the LEL.